You May Have The Exclusive Right To Sell Sandwiches, But I Can Still Sell Burritos Because A Burrito Is Not A Sandwich!

7th Circuit Court of Appeals Judge Richard Posner has written an essay in the New Republic“discussing” Justice Scalia’s recent book (co-authored with Bryan Garner), “Reading Law: The Interpretation of Legal Texts.” In Judge Posner’s essay, he reminded us of an “old saw,” an unreported 2006 Massachusetts court decision** about the meaning of the words we choose to use in our leases.*** In this particular case, the word is “sandwich.”

A Panera Bread franchisee spent several months negotiating a lease, “partly because of [Panera’s] request to include an exclusivity clause in the lease.” Panera prepared the original text and it was revised three times before the lease was signed. Subject to a number of carve-outs, the core of its disputed language was:

Landlord agrees not to lease… for [use as] a bakery or restaurant reasonably expected to have annual sales of sandwiches [emphasis ours] greater than ten percent of its total sales… .”

Along comes the Mexican-style QSR (quick service restaurant f/k/a fast food restaurant) – Qdoba. Its menu items include tacos, burritos, and quesadillas. So, after Qdoba spent “over $85,000” in planning costs and contractually committed to spending another $300,000, Panera threatened its shopping center landlord and the landlord reacted by seeking a declaratory judgment to the effect that Panera’s exclusive use right had not been violated. Panera responded by asking the same court for a preliminary injunction to stop Qdoba. The niceties of those remedies, declaratory judgment and preliminary injunction, are described in the Ruminations blog of September 2, 2012 (which can be found HERE.

Panera lost. Here’s why:

Simply speaking, Panera argued that a burrito was a sandwich and the Landlord argued that it was not. So, the court had to interpret the lease. There are a series of rules used by courts to aid in contract interpretation. An explanation of most of them will probably appear in a later edition of Ruminations. For now, all we need to know is that “[t]he starting point must be the actual words chosen by the parties to express their agreement. [] If the words of the contract are plain and free from ambiguity, they must be construed in accordance with their ordinary and usual sense.”

From that point onward, it was all downhill for the court. It found that the term “sandwiches” was not ambiguous. Thus, because the lease didn’t provide its own definition, it looked for the “ordinary meaning.” Where did that come from? The court turned to The New Webster Third International Dictionary, where it found a “sandwich” to be “two thin pieces of bread, usually buttered, with a thin layer (as of meat, cheese, or a savory mixture) spread between them.”

Without saying so, the court couldn’t find the “second” slice in a taco, burrito or quesadilla, and it didn’t even believe that the flour tortilla was bread. Panera tried to extend a finding by the International Trade Court’s to “prove” that a corn taco shell was bread, but this court was unmoved. It said the Trade Court’s tariff-setting opinion used “bread” in its commercial sense, but the Panera lease was using “bread” (as an unspoken part of “sandwich”) in its ordinary sense, and tacos are not ordinarily thought of as “bread.”

According to the court, there was no evidence that, during their negotiations, either the landlord or the tenant intended burritos, tacos or quesadillas to be counted as sandwiches. Thus, Panera lost.

The Massachusetts court pointed out certain missed opportunities for Panera to have done a better job for itself. For one, during negotiations, it never even told the landlord that it had any concern about burritos, etc. Next, it knew or should have known of other QSRs that sold sandwich “alternatives,” either by way of its general knowledge or because there were Mexican-style restaurants at other shopping centers near this very location.

Fundamentally, the court summed up this blog for us when it wrote: “Because [Panera] failed to use more specific language or definitions for “’sandwiches’ in the Lease, it is bound to the language and the common meaning attributable to ‘sandwiches’ that the parties agreed upon when the Lease was drafted.”

What went wrong for this Panera franchisee was that it forgot what it really wanted to protect. It defined its business too narrowly. The Panera franchisee shouldn’t have thought of itself as being a sandwich business. Assuming that it wasn’t going to be able to bar every other style of QSR, it probably should have seen itself as selling items that were the functional equivalent of sandwiches. Courts are people too, and as people they understand categories described by way of example. So, Panera could have “gone for” a list, such as: “sandwiches and the functional equivalent of sandwiches, including without limitation: wraps, burritos, tacos, quesadilla, and pita pockets.” Add “hamburgers” or “hot dogs” if that’s what you intend. That might have done the trick. Also, it would have fleshed out the “issue” during negotiations, and had the text survived, this case would not have arisen in the first place – no angst, no legal bills.

Now, to beat up on the court a little (as Judge Posner seemed to be doing). The court’s strict reliance on the dictionary ended any other attempt it might have made to understand what was really intended and, quite frankly, what should have been expected – at least to the point where the issue could (or should) have been fleshed out during lease negotiations. That’s unfortunate because, had the court been inclined (or persuaded by Panera’s attorneys) to think beyond “textualism,” it might have realized that it was authorizing the sale of items like pita pockets (under the one piece of bread theory). From there, one could go to an intact roll with a slit on the side and stuffed with meat. How about an “open” roast beef “sandwich”? How about two of them on sale for five dollars? Eat them one at a time (meaning neither is the court’s “sandwich”) or fold them together yourself – sandwich or not? On the other hand, how would have the court defined an “open roast beef (or other open) sandwich” if it had already concluded that a sandwich needs two slices of “bread”?

Does the ordinary consumer “see” a hamburger as a sandwich? The court did. Did the landlord? Honestly, did the tenant?

So, if any reader wants to take a shot at redrafting for Panera, keep in mind that using the “list” approach of specifically saying “tacos, burritos, and quesadillas,” and not using those as examples, might not catch wraps, pita pockets or similar foods of which neither the reader nor this writer are aware.

We won’t discuss whether a restaurant serving “Middle Eastern” food is protected by a carve-out for “near-Eastern” food. Nor did this court, even though the question apparently was presented. [Professor Wikipedia says it like this: “Before the First World War, “Near East” was used in English to refer to the Balkans and the Ottoman Empire, while “Middle East” referred to Iran, Afghanistan, and Central Asia, and the Caucasus. In contrast, “Far East” referred to the countries of East Asia (e.g. China, Japan, Formosa, Korea, Hong Kong, etc.).” It also says the following: “Many [who?] have criticized the term Middle East because of its implicit Eurocentrism.” Ruminations takes no position on this because, if it did, it would feel compelled to figure out what a “Mexican-style restaurant” might be.

So, HERE IS A CHALLENGE to our readers. Send us YOUR examples of troublesome “exclusive uses,” and if we get enough of them, we’ll share them “back” to our readers. Here’s a chance to tell a war story, and a chance for us to edit your story and “spread the word.”

Send them by posting a comment (and, that’s the best way), or by emailing your examples to imeislik@meislik.com.

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** For those who want to read the original court opinion, it is known as: White City Shopping Center, LP. V. PR Restaurants, LLC, 21 Mass. L.Rptr. 565, 2006 WL 3292641 (Mass. Super. 2006). If you can’t get a copy otherwise, email imeislik@meislik.com for one.

*** For those who missed it, Judge Posner takes issue with reliance on the dictionary to find “original meaning.”

Comments

Ira, a very thoughtful piece. Take the case of a bagel. You can buy it whole right off of the tray and eat it that way. No slices, so no different from a burrito. You can slice it, put lox and cream cheese on it and eat it open faced – two slices but not a sandwich yet. Or you can bring the two pieces together. So it morphs into a sandwich at that moment. Perhaps a better test for Panera was to provide for any bread product “that has the potential of being eaten like a sandwich..’

All kidding aside, it is true that Panera did not define carefully enough what product lines it wanted to protect. The best approach was to attempt to generically define what a sandwich was and then to list the items that are not to be considered as sandwiches individually in a list. Perhaps that was the landlord’s job but the court did it for him in a rather tortured analysis. More thought had to be put into it from Panera’s side. I’ve seen this problem before when the business people demand an exclusive drafted but don’t carefully think of the products they want protected by the exclusive. As a result they fail to properly instruct their attorneys who are not often intimately familiar with the product lines. Further, it does not appear reasonable from a business standpoint in this case for a non-ethnic operation like that to expect that it could control a whole segment of ethnic food such as tacos or burritos, thereby excluding a large industry segment from the center such as a Mexican restaurant. Of course, if the landlord agreed to it, then there you are.

My “war story” involving a contest as to exclusive uses relates to two restaurants that both sold traditional Italian foods. One had an exclusive for “customary 16″ pizzas,” which led to a battle not only over the exact size of the pizzas sold by the competitor but also an issue as to what is “customary” in that industry – machine pressed vs. hand tossed. The tenant protecting its 16″ pizzas also had an exclusive for parmigiana sandwiches including meatball, chicken and veal, but not for sandwiches on focaccia bread. The competing tenant sold products that to the naked eye looked, and perhaps tasted, suspiciously like the traditional parmigiana sandwiches but, alas, were said to be made with ciabatta bread and therefore within the focaccia exception. Go know! Fortunately, an accord was reached, and both tenants have conducted their businesses happily ever after.

While this falls under more of the business side of things, and I understand that the answer depends on certain factors such as the type of center and tenant mix, but can anyone other than the Panera operator reasonably see a situation where a Landlord will grant Panera, Subway or any QSR sandwich operator protection against tacos, burritos and pittas? It seems to me that Panera was being unreasonable with its ask.

Disclaimer: Ruminating and rambling can easily be confused. There are a lot of dictionary meanings for “ruminating.” Our favorite (today) is: “to turn a matter over and over in the mind.” That sounds a lot like “rambling.”
For that reason, no one should mistake anything written on this blog as resembling legal advice, even when written by an attorney —not the original blog entries, and not any comments. This blog is intended to be a discussion board for concepts–some flakey, some not–that affect Retail Real Estate Law. Please join that discussion.